Wednesday, June 28, 2006

There is a controversy over the fact that the men's champion at Wimbledon
will receive more prize money than the women's champion. However, the economic
arguments behind the discussion of calls to equalize the prize money are based
upon a labor theory of value, an economic argument that was discredited long
ago:

As things stand, however, I must disagree with Serena Williams, her sister,
Venus, and Lindsay Davenport, who are among those demanding the same reward for
the Gentlemen's and Ladies' champions... Equal pay should stem from equal work.
Call me old- fashioned or worse, but fair is fair.

This year's men's champion will receive $1.2 million. The women's winner will
get about $1.13 million, about $70,000 less... For some reason, those who
support the idea of equal pay are quick to discount the fact that women play
best-of-three-set matches while the men endure best-of-five sets.

It can make a difference. Hours of difference, hours of sweat equity, really.
Though seven-time Grand Slam singles champion John McEnroe favors equal pay, he
agrees with the assertion that men do more work. ''There are amazing men's
matches that can be so long you say, 'How in the world can you say there should
be equal pay,''' the NBC broadcaster says. ...

Here's the counter argument:

''We work just as hard as the men,'' says Kim Clijsters, the world's No.
2-ranked women's player and U.S. Open champion. ''There is a big strain on the
body.'' ...

What's Fair?

''I don't think that it's fair the women get paid the same as the guys,''
says Andy Murray, Britain's No. 2 player. ''If you look at it, the guys have the
potential to play a 5 1/2-hour match.''

Advocates of equal pay are fond of citing television ratings to buoy their
argument.

Yes, it's true that last year's Venus Williams-Davenport Wimbledon final drew
more viewers in the U.S. than the Roger Federer and Andy Roddick championship
match. More British TV viewers also chose to watch the women.

Such an argument is shortsighted because, among other reasons, the game's
popularity is cyclical. There was a time, and it will come again, when the male
players are the bigger television draw.

One year Federer is all the rage and then it's tennis player-Sports
Illustrated swimsuit model Maria Sharapova, some of whose audience is only
marginally interested in her backhand.

Three Versus Five

Not only that, but female players can't discount the number of commercials a
television network shows during a five-set match compared with three sets. More
commercials mean more revenue...

So let's get this straight. ... The women are on par with the men. They're on
par in every meaningful way. They pack stadiums. They draw a TV audience. They
sell the game. The only difference is how long they play.

When that changes everyone should stand alongside the Williams sisters and
clamor for equal pay.

The idea that equal hours justifies equal pay is wrong. I could spend months
working on a painting, an actual artist could spend an hour, and when we were
done my hours and hours of work would surely be less valuable than a few strokes
from the artist unless someone had a curious taste for really bad art. Are grades based upon how much time you spend studying? Students sometimes make that argument (I worked really hard for the test) but the grade is based upon the output of the process, the score on the exam, not the amount of input (for fun, try answering the student with: you're an economics major, why should inefficiency in the form of long hours on the input side with little to show for it on the output side be rewarded? Similarly, why should McEnroe get paid more than women if he works harder like he says but has less viewers to show for it?). The
value of inputs - laborers, plastic, wood, tennis players in tournaments - is
determined by the demand for the product they produce. When demand for the
product increases, the demand for inputs increases, and compensation rises.
Compensation is not based upon how much time and effort goes into production -
if nobody wants the product, then nobody will pay for the labor.

What is the product here? They are selling entertainment and compensation to
inputs is based upon the added entertainment value provided by men and women
players. It doesn't matter if people come to the stadium or tune in on TV to
watch tennis or a swim suit model, all that matters is that they watch. The
argument that tournament sponsors can sell less adds during women's matches
stated above is relevant as that affects revenue, but if the ads are more
valuable because of higher viewership, its not necessarily the case that
compensation should fall. It's interesting that when confronted with higher viewership for women's matches, the writer argues that men should be paid more because "There was a time, and it will come again, when the male
players are the bigger television draw."

In a competitive market, this wouldn't be an issue. The reason there is any
dispute at all is because the players have monopsony power on the input side,
and tournament organizers have monopoly power from their side of the prize money
negotiation. When a monopsonist meets a monopolist (e.g. GM versus unions),
there is no necessary outcome since both sides have negotiating power. The
outcome will depend upon the relative power of each side in the negotiation and
that, it seems, is really what is at issue here.

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Equal Pay at Wimbledon?

There is a controversy over the fact that the men's champion at Wimbledon
will receive more prize money than the women's champion. However, the economic
arguments behind the discussion of calls to equalize the prize money are based
upon a labor theory of value, an economic argument that was discredited long
ago:

As things stand, however, I must disagree with Serena Williams, her sister,
Venus, and Lindsay Davenport, who are among those demanding the same reward for
the Gentlemen's and Ladies' champions... Equal pay should stem from equal work.
Call me old- fashioned or worse, but fair is fair.

This year's men's champion will receive $1.2 million. The women's winner will
get about $1.13 million, about $70,000 less... For some reason, those who
support the idea of equal pay are quick to discount the fact that women play
best-of-three-set matches while the men endure best-of-five sets.

It can make a difference. Hours of difference, hours of sweat equity, really.
Though seven-time Grand Slam singles champion John McEnroe favors equal pay, he
agrees with the assertion that men do more work. ''There are amazing men's
matches that can be so long you say, 'How in the world can you say there should
be equal pay,''' the NBC broadcaster says. ...

Here's the counter argument:

''We work just as hard as the men,'' says Kim Clijsters, the world's No.
2-ranked women's player and U.S. Open champion. ''There is a big strain on the
body.'' ...

What's Fair?

''I don't think that it's fair the women get paid the same as the guys,''
says Andy Murray, Britain's No. 2 player. ''If you look at it, the guys have the
potential to play a 5 1/2-hour match.''

Advocates of equal pay are fond of citing television ratings to buoy their
argument.

Yes, it's true that last year's Venus Williams-Davenport Wimbledon final drew
more viewers in the U.S. than the Roger Federer and Andy Roddick championship
match. More British TV viewers also chose to watch the women.

Such an argument is shortsighted because, among other reasons, the game's
popularity is cyclical. There was a time, and it will come again, when the male
players are the bigger television draw.

One year Federer is all the rage and then it's tennis player-Sports
Illustrated swimsuit model Maria Sharapova, some of whose audience is only
marginally interested in her backhand.

Three Versus Five

Not only that, but female players can't discount the number of commercials a
television network shows during a five-set match compared with three sets. More
commercials mean more revenue...

So let's get this straight. ... The women are on par with the men. They're on
par in every meaningful way. They pack stadiums. They draw a TV audience. They
sell the game. The only difference is how long they play.

When that changes everyone should stand alongside the Williams sisters and
clamor for equal pay.

The idea that equal hours justifies equal pay is wrong. I could spend months
working on a painting, an actual artist could spend an hour, and when we were
done my hours and hours of work would surely be less valuable than a few strokes
from the artist unless someone had a curious taste for really bad art. Are grades based upon how much time you spend studying? Students sometimes make that argument (I worked really hard for the test) but the grade is based upon the output of the process, the score on the exam, not the amount of input (for fun, try answering the student with: you're an economics major, why should inefficiency in the form of long hours on the input side with little to show for it on the output side be rewarded? Similarly, why should McEnroe get paid more than women if he works harder like he says but has less viewers to show for it?). The
value of inputs - laborers, plastic, wood, tennis players in tournaments - is
determined by the demand for the product they produce. When demand for the
product increases, the demand for inputs increases, and compensation rises.
Compensation is not based upon how much time and effort goes into production -
if nobody wants the product, then nobody will pay for the labor.

What is the product here? They are selling entertainment and compensation to
inputs is based upon the added entertainment value provided by men and women
players. It doesn't matter if people come to the stadium or tune in on TV to
watch tennis or a swim suit model, all that matters is that they watch. The
argument that tournament sponsors can sell less adds during women's matches
stated above is relevant as that affects revenue, but if the ads are more
valuable because of higher viewership, its not necessarily the case that
compensation should fall. It's interesting that when confronted with higher viewership for women's matches, the writer argues that men should be paid more because "There was a time, and it will come again, when the male
players are the bigger television draw."

In a competitive market, this wouldn't be an issue. The reason there is any
dispute at all is because the players have monopsony power on the input side,
and tournament organizers have monopoly power from their side of the prize money
negotiation. When a monopsonist meets a monopolist (e.g. GM versus unions),
there is no necessary outcome since both sides have negotiating power. The
outcome will depend upon the relative power of each side in the negotiation and
that, it seems, is really what is at issue here.